50%+ from Treasury Bills

 

The headline at Bloomberg reads “Stocks in U.S. Climb on Speculation Job Losses to Spur Action on Stimulus”. Apparently, the employment news is so bad that it’s actually good because it means the government will have to do something about it. 

Sounds a bit backwards, right? Shouldn’t investors wait until there are actual signs of improvement before they start plunking their money down? 

Makes sense – if financial markets were rational. But of course, they’re not rational. If they were, it would be very difficult to make money on stocks. Fear and greed move stock prices. And that’s why investors like Warren Buffett say they’re greedy when others are fearful, and vice versa.

So when you see a headline like the one at Bloomberg, understand that stocks are rallying on bad news. That’s a sign of a market that’s bottomed, at least for the near-term. 

*****I’ve been saying that I expect a rally to begin sometime next week as earnings season winds down. Forecasts are great and all, but it’s never a good idea to ignore what the market is saying. And right now, it’s saying rally time is now. 

So now looks like a good time to put some money to work. Even though we didn’t get Graham Corp. (AMEX:GHM) at $9 like I was hoping, I think it’s a good trade at current levels around $11.   

I’m also liking the S&P Retail SPDR (XRT). There are a number of analysts saying that retail has been beaten down too far. The XRT could make 15%-20% gains from current levels. 

Jason Cimpl at TradeMaster Daily Stock Alerts likes a couple biotechs. He says CardioNet (Nasdaq: BEAT) should make a run at resistance at $25. And he’s also bullish on Cephalon (Nasdaq: CEPH).  

*****Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the bailout funds, told the Senate Banking Committee on Thursday that Treasury in 2008 paid $254 billion and received assets worth about $176 billion. 

That’s great. Thanks Paulson. 

*****Bill Gross, co-chief investment officer of Pacific Investment Management Co., said the U.S. may slump into a “mini depression” unless policy makers spend trillions of dollars to spur growth. 

“This economy needs support from the government, a check from the government in the trillions,” Gross said today in a Bloomberg Television interview from Pimco’s headquarters in Newport Beach, California. “There is a potential catastrophe if the U.S. government continues to focus on billions of dollars.” 

Trillions. That’s a lot. And since Bill Gross is a bond guy, it’s hard to see how he’s talking his book here. More government spending can’t be good for bonds. 

Also, have you noticed that the big players like Gross are in favor of government bailouts and that it’s usually the smaller players who are opposed to intervention? 

*****I’ve been steadily adding to my positions in the Recovery Portfolio. I just bought more shares of my favorite mutual fund. This fund is heavy on healthcare stocks and is also buying top companies that are trading at multi-year lows. The manager of this fund is one of the best, and I’m looking forward to significant gains in the months to come. 

Still, my favorite position is my “short Treasury bonds” position. To me, a drop in Treasury bond prices is absolutely inevitable. When Obama goes to fund his stimulus bill, it’s going to mean a huge amount of borrowing in the form of T-bills. And when the U.S. economy starts to recover, which necessarily means inflation picks up, money will flood out of bonds. 

Plus, this particular investment is less than 10% from all-time lows. I believe risk is limited to approximately that 10% in the near-term and the upside is better than 50% over the next 12 months. For more information on my $100,000 Recovery Portfolio, please click HERE. 

*****The Trademaster Investor Forum: Steady Profits in a Range Bound Market airs on Monday, February 9 at 6 pm. If you haven’t registered for this free video event, you can do so HERE.